Standing before a bright screen broadcasting idyllic images of Canadian nature on Thursday, Conservative Leader Erin O’Toole announced his party’s new “pricing mechanism for consumers.” A plan, he said, that would allow him to scrap the Liberal price on carbon.
O’Toole’s plan would instead institute a $20 per-tonne-carbon price that would fund what he called a “national personal low carbon savings account.”
“I’m sure many Canadians, if they look on their smartphone or in their wallet, have many loyalty and point-systems…this is actually less complex and very easy to administer,” said O’Toole.
“This will allow Canadians to feel in charge, and then if they have modest savings in their low-carbon savings account, they may take a few years to upgrade that bike if they’re in a city.”
But according to economists, the loyalty-card-style account could easily end up as more of a “gimmick” in an otherwise stronger climate plan.
What is the low-carbon savings account?
The Conservative proposal is similar to other points-card systems, where Canadians would be filling up a tax-free personal savings account every time they buy fuel.
“So think of this like Air Miles, but we’ll call it the carbon miles. You go and fill up your gas, you swipe your carbon bucks card, or your carbon miles card, and every dollar of carbon tax you spend goes into your personal account,” said Blake Shaffer, an assistant professor in the department of economics and School of Public Policy at the University of Calgary.
According to O’Toole, “zero” dollars of this carbon price would land in federal coffers. But the money doesn’t land in Canadians’ personal accounts without strings attached.
O’Toole said the Conservatives would work with the provinces to create the account, and will have a list of products the money can be spent on — all of which will have to help Canadians live a “greener life,” like a bike or a bus pass. The Conservatives have not yet specified will be on the list.
“If the allowable expenditures from the account are very narrow and targeted on things that you wouldn’t have otherwise have purchased, then there’s an incentive to use less fuel to pay less carbon tax,” explained Trevor Tombe, an associate professor of economics at the University of Calgary and a research fellow at The School of Public Policy.
“And then on the other end, it’s forcing you to purchase different types of goods that might lower emissions. So depending on the list of what you’re allowed to spend on, this could have an effect.”
The proposal was swiftly slammed by Liberal Environment Minister Jonathan Wilkinson, who called the savings account a “Petro points scheme where the more you burn, the more you earn.”
But while the plan might reduce some of the existing pressure to cut down on fuel consumption, economists say it doesn’t create an incentive to use more fuel — despite criticisms from the Liberal party.
“It is nonsensical to say this is encouraging people to consume fossil fuels,” explained Ian Lee, an associate professor in the Sprott School of Business at Carleton University.
“You still have to pay the price of the fossil fuel…at the pump to get back down the road.”
He explained that regardless of the points people may be collecting, they’ll still have to pay more upfront for fuel usage — and that’s going to affect demand.
“The more expensive something is, the less people want to buy it,” said Lee.
“I don’t drive around the block 50 times because I’m saying, gee whiz, if I drove around the block 50 times, I’m going to get back 20 cents of every dollar I put (in). I’m still losing 80 cents.”
How does it compare to the Liberal plan?
Under the current Liberal carbon pricing plan, provinces without their own pricing scheme are subject to a $40 price on carbon — which is slated to increase to $50 next year, and will only stop when it hits $170 in 2030.
While the government collects that money, it doesn’t get to keep it all. Instead, 90 per cent of the revenue is sent back to Canadians in the form of a rebate. The other 10 per cent is given the small and medium-sized businesses, schools, hospitals and organizations that can’t pass on their costs from the carbon tax directly to consumers.
Because this carbon price “backstop” only applies where provinces don’t have their own carbon pricing plan in place, it’s only in effect in Alberta, Saskatchewan, Manitoba and Ontario, Nunavut and Yukon.
O’Toole plans to scrap this backstop, replacing it with a lower, $20 price on carbon and funnelling those funds into the “personal low carbon savings account.”
As for how that money is spent, the current Liberal plan sends out rebates to Canadians. Those rebates are the same regardless of income, but because wealthier Canadians tend to own a bigger home, drive more, and do that driving in bigger cars, they’re more likely to end up paying more of the price on carbon.
The Conservative plan, on the other hand, gives points-style rebates directly to Canadians as they spend money on fuel.
“Relative to the current policy, which is a rebate that’s not tied to your individual spending patterns, but to aggregate carbon tax revenues, this is going to be something that hurts lower-income households who tend to buy less fuel relative to higher-income households,” Tombe said of the Conservative plan.
“So by tying the rebates to your individual decisions, almost eliminates completely the entire progressivity that’s built into the current plan.”
The personal savings account also “diminishes the incentive” to reduce the use of fossil fuels compared to the current Liberal carbon price policy, according to Shaffer.
The Conservative plan puts a lower price on carbon compared to the Liberal plan: $20 compared to $40. That means, to rival the emissions reductions in the Liberal plan, the behaviour change would have to come from the incentive created by the personal savings account.
“It comes down to pretty simple economics here. In the current plan, you pay your tax when you use the fossil fuel and you get a rebate no matter what,” Shaffer explained.
“And in this proposed plan, you pay a tax, a lower one, when you use a fossil fuel, and then you get you build up a bank of your savings account based on how much you spend.”
He explained the effectiveness of the Conservative carbon price leans heavily on what those savings can be spent on — and how broad that list is. Until that list is revealed, it’s hard to know how effective the savings accounts will be.
“If you could spend it on anything, this is absolutely foolish,” he said.
If the Conservatives get that list right, though, it could give them an edge when compared to the Liberal plan, Lee said. That’s because the Liberal rebates can be spent however Canadians see fit — whether that’s on fossil fuels, or in another country.
The Conservative plan, however, forces the fruit of the carbon price to be spent on green purchases.
“That’s an advantage of the Conservative plan over the Liberal plan, is that it redirects the money paid in the carbon tax into…green products that will increase energy efficiency over time, which will benefit the economy,” Lee said.
“So that is a good that’s a knock on a benefit of that plan.”
Will it work in practice?
When it comes to how effective this savings account will actually be, economists say it depends heavily on what’s on the list of products that Canadians are allowed to spend their low-carbon savings account funds on. The Conservatives have yet to release that list.
“There is a strong possibility that the carbon pricing component of this plan will have little-to-no effect at all if the list of items that are allowed to be spent out the account is long,” said Tombe.
“It becomes just pure political marketing, and (is) not actually introducing real economic incentive.”
If the list includes things people were already planning to spend their money on, Shaffer added, then it won’t change consumer behaviour and have little impact on emissions.
“It seems like it won’t change any behaviour if it’s going to fund spending that you would already do. So it doesn’t seem like it’s going to have much of a bite,” he said.
On top of that, people who aren’t spending money on fossil fuels won’t get any money from these accounts — and those that do, won’t get much.
“My concern is that (at) 20 dollars-per-tonne, the average house is going to (get) something like two hundred dollars of these savings accounts. That’s like two months of a transit pass. That’s one bicycle,” said Shaffer.
All in all, Shaffer said, these “kind of goofy personal savings accounts” are “not only operationally challenging, but economically foolish.”
The accounts will also be difficult to execute in practice, he warned.
“This is going to be burdensome. You’re talking about individual savings accounts. It’s going to be very complicated. I’d be surprised to see it get the light of day,” he said.
On top of that, the costs of actually administering this plan “would not be low,” according to Tombe.
Additional questions also come up when you consider that it’s not just Canadians who buy gas at Canadian pumps. With O’Toole pledging that the government won’t pocket a penny of the carbon price, Tombe wondered what happens to unclaimed carbon price payments.
“What about tourists that come in to Canada and purchase fuel? They’re not going to have the carbon miles points card that you swipe at the pump. So what happens with the carbon tax payments for those who don’t have account? Where do they go?” Tombe asked.
At the end of the day, the economists said, the carbon pricing aspect of the plan reads like a political proposal, rather than an economic one.
“It’s a political messaging move and it lets them engage on this issue in a way that doesn’t come across as a kind of climate denial approach,” Tombe said.
“They can say they’re committed to carbon pricing, even though that component of the plan is doing almost nothing.”
— With files from The Canadian Press